Investing in the Nordics

by Richard Young | June 16, 2012 8:05 am

Last month, I told you I was increasing my exposure to the major economies of the Nordic region. Now I’ll tell you why investing in the Nordics is wise. The Nordics are free countries, with happy, well-educated populations, moderate corporate taxes, and a focus on R&D.

Citizens in the four largest Nordic countries enjoy peaceful, happy lives. The U.N.’s World Happiness Report ranks Denmark as the happiest nation in the world, followed by Finland and Norway. Sweden comes in close behind at seventh happiest. The Nordics have a strong rule of law. All four are among the six least corrupt countries, according to Transparency International.

Most Competitive

IMD ranks the four major Nordic economies among the world’s 20 most competitive. The World Economic Forum’s Global Competitiveness Index also ranks them in its top 20, with Sweden and Finland ranking third and fourth, respectively. One factor driving the Nordics’ advanced competitiveness is their moderate corporate tax rates. All four nations have corporate tax rates near the OECD average of 24%, unlike the United States, which boasts the OECD’s highest corporate tax rate at 35%. And all four have strong reputations around the world, placing in the top 20 of Future Brand’s Country Brand Index.

Another contributor to Nordic success is the quality of the human resources in the region. Education and research are top-notch among the Nordics. Sweden and Finland topped the OECD’s ranking of R&D specialization, with Denmark coming in fifth. All four beat the U.S. in the rate of doctoral graduations. The strong knowledge base has spurred creativity and innovation. Finnish software developer Rovio created the Angry Birds franchise, which has become a worldwide phenomenon, spawning merchandise, a forthcoming cartoon, and, of course, more Angry Birds computer games.

But innovation in the Nordics isn’t confined to software. Companies like Norway’s Statoil are constantly developing leading-edge technologies. Statoil is one of the world’s most advanced oil and natural gas exploration companies and places a high value on innovation, purposefully developing technologies to improve oil and gas detection and extraction. Using new subsea gas compression technologies, Statoil will recover 12% more of the gas trapped in its Gullfaks field. Statoil is also working with its partners to develop an offshore drilling rig that will be 20% more efficient than conventional rigs.

Building Fortunes

The Nordics have built a number of Fortune Global 500 companies including AP Moller Maersk (PINK:AMKBF[1]) and Danske Bank Group (PINK:DNSKY[2]) in Denmark, Nokia (NYSE:NOK[3]) in Finland, Statoil (NYSE:STO[4]) in Norway, and Volvo (PINK:VOL[5]), Vattenfall, and L.M. Ericsson (NASDAQ:ERIC[6]) in Sweden. These companies have become major multinationals with the Nordic region as their home base.

Founded by Arnold Peter Moller in 1904, AP Moller Maersk has grown into one of the world’s largest shipping companies, a world-leading logistics company, an international oil and gas producer, a multinational terminal operator, and more. The Maersk Line fleet, which constitutes AP Moller Maersk’s main business, comprises over 600 ships. The Maersk Line also operates 3.8 million TEU of cargo containers. A TEU is a 20-foot equivalent unit. For an idea of how big that is, each TEU can hold about 48,000 bananas.

Vattenfall was born in 1909 with Sweden taking over the Trollhättan Canal and associated hydroelectric power plant infrastructure. Today, Vattenfall is a multinational power company, doing business throughout northern Europe. Vattenfall generated 166.7 TWh of electricity in 2011, most of it in Sweden and Germany.

iShares MSCI Sweden ETF

My vehicle to investing in the Nordics is the iShares MSCI Sweden ETF (NYSE:EWD[7]). The index ETF was created in 1996 and has an expense ratio of 0.51%. If you haven’t already, initiate a position in iShares MSCI Sweden ETF, and if you have an existing position, you can add to it. I will update you on the three mini-funds in Denmark, Norway, and Finland in coming issues.